eucatastrophe n. eucatastrophic [ < Gr. eu, "good" and catastrophe Coined by JRR Tolkien.] 1. (in a narrative) The event that shifts the balance in favor of the protagonist when all seems lost. 2. A happy ending.

February 2015

02/23/2015

“One of the most important factors in his execution of a deal was concealing from others even the intimation of what he was going to do. In these accomplishments he never professed a regard for truthfulness. He was quite indifferent to the moral question of misleading people.”

Thomas G. Shearman, quoted in Stead, "Jay Gould: A Character Sketch"

There are times in the course of this book when I thought that it would make an interesting basis for a movie script. It has the feel of Robert Redford’s The Sting or Oceans 11. Ackerman tries to tell the story of how Jay Gould and James Fisk tried to corner the gold market in 1869. One is left wondering just how much of the truth can be established from this distance when investigations even in the day were unable to entirely establish a set of facts that can be agreed on.

I wonder if my telling of the story in a history class has to be accurate for it to be worth telling. Grin.

Perhaps it will help to summarize the events.

Jay Gould and James Fisk were two young men with great ambition and few scruples. This was a deadly combination in an economy exploding with new money and devoid of any oversight or regulation in how it might be won or lost. Gould and Fisk’s first economic bonanza came from their work with the Erie railroad. Cornelius Vanderbilt wanted the railroad to complete his monopoly of rail lines from the Midwest to New York (consider the value of this control in a world where every farmer in the West would need access to markets in New York and everyone in New York would need food from the West). Knowing that Vanderbilt was about to make a move to buy up all of Erie’s stock so that he could monopolize the railroad vital connections, Fisk and Gould simply began secretly printing up some millions of dollars’ worth of Erie stock certificates (in violation of a court order) and selling them to Vanderbilt on the market. They took advantage of his aggressiveness and made him pay dearly – as in, to the tune of eight million dollars..

They then used a good portion of the millions that they made off him to bribe the New York State legislature into legalizing the stock that they had basically illegally created. A double screw-over. “You have my authority for stating that I consider Mr. Jay Gould a damned villain,” Vanderbilt would later tell the Chicago Tribune. Having maintained control of the Erie railroad, Fisk and Gould used its resources to acquire and maintain the services of Tammany Hall, Boss Tweed, and a number of strategically located government officials and judges. Jay Gould then came up with an idea for making even more money.

Apparently, there was about 15 million dollars’ worth of gold in circulation in New York. Gold was an essential ingredient in commerce in New York because people needed it to buy anything from Europe. Europeans would use gold to purchase American produce and manufactures and expected to be paid with it for their own commercial goods. The American government was stocking up on gold as well – hoping to eventually acquire enough of the stuff that they could return to a gold standard (an economy where there would be one dollar of gold in Fort Knox for every dollar of paper out in the economy). The U.S. Government had about $100,000,000 worth of gold in Fort Knox, allowing it to essentially determine the price of gold in the markets if it wanted to. All it had to do was sell some to lower the market value.

Gould’s plan was to figure out a way to pin the nation’s gold in its vaults while he cornered the $15 million out in circulation. Plan A involved convincing President Grant to keep his Secretary of the Treasury from interfering with his plan. Accessory to that plan, he began seeding Grant’s immediate family (via gold accounts to Grant’s sister, Jennie and brother-in-law, Abel Corwin), Grant’s office (via an attempted bribe of Grant’s secretary), and the Treasury (via an off-the-books interest free loan) to the assistant Treasury Department official who would be responsible for selling U.S. Gold in New York if Grant requested it to be sold. Gould assumed that Grant would have personal reasons for not getting involved. He hoped that Grant would accept his argument that high gold prices would be good for American farmers, and he assumed that even if Grant broke ranks, Gould would find out about it from the Assistant secretary in time to start selling off his gold reserves before the news hit the markets.

Here is an example of Jay Gould’s “style” from Ackerman’s book:

“Jay visited the new assistant treasurer on July 1, two days after Butterfield had moved into his Wall Street office, to offer his services. Jay found a useful way to help Corbin’s young friend: by giving him a check for $10,000—an amount bigger than Butterfield’s $8,000 annual government salary. Butterfield later portrayed the money as an innocent “real estate” loan, albeit interest free with no documentation or repayment date.”

Fisk and Gould started buying gold through anonymous third parties. They had access to their own personal bank that they could use to underwrite their purchases. “Endless cash backed the buying spree,” Ackerman says, “The Tenth National Bank certified more than $25 million in checks for Ring brokers that day. Most were backed by flimsy or nonexistent collateral.” They also had the resources of their company, the Erie Railroad. Gould had just recently sold a lot of new stock in it to unsuspecting European investors who could not have known that Gould and Fisk planned to use the flush of money for a raid on America’s gold markets.

Fisk and Gould were alchemists, you might say, turning trust into money.

Specifically, you might say that Fisk and Gould were using people’s trust in a trustworthy bank that they had obtained through stealthy means to buy gold through stealthy means for nefarious ends. If the scheme worked, they would be able to pay their bank and their company back what they had basically “stolen” from them with the proceeds of the gambit. Of course, if their gambit failed, it would be the people who had savings accounts in that bank or investments in that railroad who would take the hit, not them. Thus, as their secret brokers began to buy, gold prices began to rise with no noticeable reason as more and more purchases drove the price up. Others began to buy for no other reason than they saw the prices rising. Many started betting against the new trend, offering to deliver x amount of gold in, say a week, for the price listed today. This would allow them to buy it a week later at a lower price and deliver it as promised at the agreed upon higher price. Of course, they were taking a risk that the price a week later might be higher, not lower. If that turned out to be the case, they would have to buy gold at the higher price and sell it at the agreed upon lower price, thus losing money. (This is called “selling short.”)

Essentially, dealers were making the not-unlikely assumption that if the price got too high, the U.S. Government would step in, sell gold into the market and deflate the escalating prices. Gould and Fisk kept buying gold as though they were sure that Grant was not going to interfere (they were pretty sure this was the case but not certain). Short-sellers kept acting as though Grant was just about to interfere. But he didn’t. Gold-traders kept selling. Fisk and Gould kept buying. Then they would loan the gold back into the market, making it seem like there was still plenty of gold out there, disguising the fact that though there might be a lot of gold out there for sale, it was all theirs (or almost all theirs). By the end of the week, they had control of just about all of it. Given how absolutely essential gold was to anyone wanting to do commerce with Europe, Fisk and Gould would have had a “corner” – an ability to charge whatever they wanted to charge for the essential commodity that no one else had. It would have been like owning all the oxygen in New York. Or all the water on a hot day. Or all the food in the middle of a drought. They would have had complete control of the “unobtainium” – the thing that everyone needed.

Here is how Ackerman explains it:

“Jay’s game was all mirrors. He had no intention of paying $14 million plus cash to acquire all the gold that was then circulating in New York banks. By loaning out all that they bought, Jay’s clique could buy all the gold in New York, lend it back to other traders, then buy it back again from the borrowers, loan it out again, buy it back again—all without pulling a dime out of circulation. The same gold could be lent and borrowed again several times over, sometimes to the same people. Along the way, Jay would acquire a chokehold over New York gold by ‘owning’ two or three times as much as actually existed. If he needed to, he could tighten the vise anytime by calling in the gold loans and creating a citywide shortage, making prices snap to his whip. As long as the federal Treasury minded its business and kept its vaults shut, the ‘shorts’ had no escape.”

“Jay Gould, after all, had planned it that way. He would keep loaning his gold back to the market to create a false sense of security, then snap the whip at the right moment.”

Grant got wise to what they were doing and sent a telegram to the Secretary of the Treasury to sell $4 million dollars’ worth of gold in New York and within minutes, the corner was broken. Fortunately for Gould, his redundant systems of information gave him knowledge of what was going to happen before anyone else had it and he immediately began secretly selling his gold into the market the entire last day (even while pretending to the market and Fisk that he was still buying as much as he could).

The aftermath of Black Friday was a train-wreck of devastated trust all over Wall Street. Gould and Fisk’s maneuver had broken brokerages, banks, investors by the thousands, and almost completely shattered the nation’s confidence in its own financial system. It was clear that just a few people, with the right connections could game the system and acquire millions of dollars of the nation’s money in a matter of days. “Gould and Fisk combined skill and boldness with disdain for law and public opinion,” Ackerman suggests. They were a new breed of financial wizards who played the game without any moral concern for the people that their strategies might ruin, taking advantage of the fundamental trust in the system that had taken years to nurture.

Ackerman asserts that what the maneuver did to the markets was of little concern to the originators of the scheme. “The fact that their scheme might bankrupt innocent men, destroy commerce, ruin their country’s standing in world credit markets, and cover themselves with scandal,” he says, “never entered the conversation. To ‘Admiral’ James Fisk, this was war, the noblest adventure, and he would fight with a flourish.”

By the time the bloodbath was over, Fisk and Gould seemed to have made money or broke even. As in most economic crisis of this sort, it was the little guy who managed to get thrown under the bus.

“Farmers, who constituted more than half the American labor force and who were supposed to benefit from Jay’s “crop theory,” suffered worst of all. Agriculture sank into a deep depression by year’s end as tight money, overproduction and stagnant trade drove prices to record lows. Wheat dropped in value by almost one-half between August and December. The Chicago price plummeted from $1.40 per bushel to 77 cents. Com fell from 95 to 68 cents, and barley, rye, and oats all fell, too. The Chicago grain markets became ghost towns; trading volume for 1869 fell by a full one-third from a year earlier.

A few people came out ahead after the dust had settled. Bartenders at the Fifth Avenue Hotel and Delmonico’s restaurant pocketed fortunes from easing the pain of broken dreams and lost treasures of New York’s financial buccaneers. Lawyers also prospered. Beyond Jay’s instant, mass-produced injunctions, almost three hundred lawsuits followed the gold panic. Most charged him, Fisk, or both with fraud or breach of contract. Tom Shearman and John Sterling fought them all. Jay laid down the strategy: none of the cases must go to trial, and each must be delayed, stalled, and blocked until the plaintiffs despaired and agreed to settle. Sterling and Shearman obstructed brilliantly. They created procedural mazes that locked up some of the cases for over a decade. Their tactics tested the frontiers of legal ethics even by loose nineteenth-century standards.

Mark Twain seems to have fixed on the authors of Black Friday as characters for his novel, The Gilded Age. “The people had desired money before [Gould’s day],” he wrote, “but he taught them to fall down and worship it.”

Question for Comment: IF you could “corner the market” in something today, what would it be? Why don’t you?

02/22/2015

Thanks to the work of cartoonist, Thomas Nast and the New York Times, Boss Tweed is a name that will live in American infamy as long as U.S. History is taught perhaps. He is thought to have bilked the city of New York to the tune of $25,000,000 to $60,000,000 in 1870’s money, perhaps a billion dollars the author suggests in today’s money. Like Bernie Madoff, he was also a great philanthropist though unlike Bernie Madoff, he lived at a time when people bribed politicians and judges almost openly. Given his political powers, Tweed did not have to concern himself so much with looking like he was not doing what he was doing.

Reading about the rise and fall of Boss Tweed is instructive history in many ways. As I often say, history doesn’t repeat itself but it usually rhymes. The Tweed Ring had a number of illicit formulas for making money off the municipality of New York and in the context of the day, I am sure its members just saw themselves as doing what everyone else was doing - only better. There were many people in New York who made fortunes selling defective clothing and supplies to the Union army during the Civil War. Uniforms might deteriorate in a few days of rain. Meat might be spoiled upon arrival. Etc. Tweed himself made money building and outfitting the New York armory, buying up 300 benches from a run-down building for $5 a bench in 1863 and then selling all but seventeen of the same benches to the armory for $600 apiece, costing taxpayers $169,800 in the turnaround.

If no one was watching (and often no one was) a small “ring” of individuals could make off with fortunes at the public’s expense. “Crooked contractors were charging Uncle Sam sky-high prices,” Ackerman writes,

“for everything from diseased horses to defective pistols, spoiled food, and frayed, tattered uniforms. In one case, bribed Brooklyn Navy Yard officers signed receipts for an estimated million dollars in non-existent hardware—nails, paint, and tools—paid for but never delivered.”

Boss Tweed’s fortune however came from an ingenious system of extortion. Using his financial resources and the resources of wealthy men who knew that Boss Tweed was a dependable source of protection for their own schemes, Tweed was able to bribe the New York State legislature into giving he and his cronies complete control of the New York City treasury. One of his buddies was made mayor. Another was the comptroller in charge of the books. Tweed was put in charge of the public works department, and a few select individuals were made the accountants. From that point in time, taking from the treasury was like taking candy from a baby.

“Tweed made his money from many sources, not the least of it from graft like the usual 15 percent he and his circle skimmed from city contracts through the board of supervisors. These days, contractors now came to Tweed and agreed to pay up to 35 percent on all bills to win city business. Tweed would split these gains with his lunch club friends Richard Connolly, the city comptroller who controlled access to the treasury, and Peter Sweeny. Tweed easily brushed away charges of graft that occasionally arose, either pointing to their lack of evidence or painting them as political hot air. But it seemed an open secret, a grimy fact about New York City. Its government was corrupt, like its streets were dirty, its traffic clogged, its alleys dotted with brothels and pickpockets—the cost of living in a big city.”

In time, the percentage of the “take” was raised to include all of the men involved in the swindle. The Times explained the system as working like this:

“A man does some work for the City authorities and charges $5,000 for it. When he presents his bill, one of Connolly’s agents says to him, ‘We can’t pay this, but make the amount $55,000 and you shall have your money at once.’ A warrant [invoice] is drawn for $55,000, and endorsed by the presenter of the bill over to [the Ring’s agent]. The worker then received five $1,000 bills, and the Ring pockets the $50,000.” (New-York Times, July 21, 1871.)

“The proportions are exaggerated,” says Ackerman, “but otherwise it is consistent with what Tweed himself would describe years later. . . .”

“According to Tweed, it went this way: every one of the old Supervisors’ bills would be padded by 50 percent and each of the four—Tweed, Connolly, Sweeny, and Hall—would receive an equal share of 10 percent. The final ten-percent share would go to the bookkeepers—James Watson, the county auditor who worked for Connolly, and E.A. Woodward, the supervisors’ clerk who worked for Tweed—who’d prepare the paperwork and keep things secret. Tweed considered Watson ‘a very confidential man’ who ‘had my confidence to the utmost degree’; Woodward had been doing his bidding for over a decade. He trusted them both completely.”

In some cases, businessmen were “compensated” for simply purchasing goods for the city elsewhere and selling them to the city for highly inflated prices, splitting the difference with all those on the inside who were “in on the scam.”

“Ingersoll later acknowledged that he’d separated himself from his earlier firm, Ingersoll, Watson, & Company, and gone into business for himself when his partners refused to pay kickbacks to city officials. There was no ‘Company’—Ingersoll had no factories; he simply purchased the goods he later sold to the city and kept the difference.”

But Boss Tweed had numerous streams of income that accrued to him as a result of his bribery-won powers. Tweed specialized in getting votes for people who would later give him protection for his other rackets … or who would supply him with the power to hand out patronage (government jobs). As the leader of Tammany Hall, Tweed was involved in electoral fraud of the highest order. Here are some of the details:

“The problem was that most immigrants who’d come to New York since the 1850s had avoided becoming citizens. During the war, when citizenship meant conscription into Lincoln’s army to face rebel cannon on Virginia battlefields, naturalizations had frozen to a trickle—barely 3,000 a year from 1861 through 1863. Now, in 1868, some fifty to seventy thousand foreign-born Tammany warriors in New York City urgently needed to swear their oaths and get their papers before Election Day.”

In the deluge of requests for citizenship, hundreds of “voters” could be created out of thin air by having immigrants apply for several different “citizenships.” These disembodied voters could later be used by “repeaters” – Tammany men who went from precinct to precinct voting multiple times. But Tammany used its influences in the boroughs to get even legitimate voters to vote the Tammany way.

“’Is not the pending contest pre-eminently one of capitol against labor, of money against popular rights, and of political power against the struggling interests of the masses?’ a Tammany circular argued that year during the campaign. It appealed to fear as well: if Republicans win, it threatened, ‘[t]heir next step will be to bring the Southern negro North to vote down and compete against the white laborer’ —a lingering raw nerve from the Civil War even though most black citizens had left New York after the bloody 1863 riots.”

And if fear mongering and repeater voting wasn’t enough to win, ballot stuffing was always an option. “The ballots didn’t make the outcome,” Tweed is reported to have said, “The counters did.” “Of the 156,054 votes cast in New York City that year,” says Ackerman,

“the committee estimated that 50,000 had been fake or illegal, the product of repeat voting, illegal naturalizations, or fictitious counts. The total votes cast in New York City that year had exceeded the number of possible voters—actual human beings of voting age and gender—by more than 8 percent.”

To keep himself and his organization in power, Boss Tweed took advantage of his control of the public purse, the public works department, and the ballot to ingratiate himself among the New York masses. “For his Irish and German immigrant backers,” Ackerman insists,

“Tweed used his chairmanship of the legislature’s Charitable and Religious Societies Committee to win direct public subsidies for Catholic parochial schools—violating the traditional rule against public funding of religious institutions. He hid the provision in the back pages of the annual Tax Levy, a long, complex bill that contained the city’s overall budget and tax base and was loaded with pork for districts throughout the state; for upstate Protestants to get their own special favors, they’d have to give Tweed his.”

“This came on top of Tweed’s own private charity: lumps of coal at Christmas, food at Thanksgiving, and city jobs by the hundreds for poor breadwinners.”

Even after all of his corruptions and embezzlements were exposed, Boss Tweed was regarded as a saint by the underclasses who, without him, would have received nothing from the city’s treasury. Boss Tweed was a dispenser of public largess all over the city, making himself popular on other people’s money (isn’t that just the way it always is?). For him, a bridge across the East River was an opportunity to benefit the community while being an opportunity to benefit himself. Take the example of the Brooklyn Bridge.

“For Tweed, the bridge offered not just ‘a well-paying dividend stock’ but a political jackpot as well. It would take years to build, cost millions of dollars, and employ thousands of workers; ‘we expected to get the employment of a great many laborers,’ he’d later explain, ‘and an expenditure of the money for the different articles required to build the bridge.’”

One of Tammany’s more egregious scams involved the renting of their building to the city for periodic municipal functions. The top floor of Tammany Hall was rented to the city for $36,000 per year, for example, when comparable space could be had for a tenth the price. One stable loft rented for $24,000 per year for soldiers’ drilling where “the ammonia generated in the stables is most injurious to arms, equipment and clothing, and the effluvia arising therefrom are often so offensive as to render the upper part of the buildings unfit for human occupancy.”

The combination of “unprincipled” and “unsupervised” was economically deadly to the city’s financial interests. When the secret accounts of the Tweed Ring were later published,

“they painted a stunning portrait—geysers of cash flying out from the city treasury, amounts impossibly large for their stated purpose. They raised an obvious question: Where had all the money gone? The implicit answer: fraud, waste, and God-knows-what.”

“Each line alone looked innocuous: ‘Sept. 28—Paid for repairs to County Offices and Buildings, July 2, 1869… $48,798.62’ or ‘May 27—Paid for Cabinetwork Furnished in County Court-House, Aug. 23, 1869… $125,830.’”

Geysers of cash indeed.

“They listed a carpenter named George S. Miller, for instance, as receiving nine warrants in a single month for work on the courthouse totaling $360,751.61. ‘Is not this Miller the luckiest carpenter that ever lived?’ They listed purchased carpets for the courthouse and county buildings totaling $565,731.34; at $5 per yard, that was ‘money enough for carpets in the new Courthouse alone to have covered the whole City Park three times over.’

There were also numerous places where a direct conflict of interest could be violated for cash as well. The City of New York often needed the services of printing facilities for its growing bureaucracy or for advertising. Boss Tweed, conveniently, had his own printing company that could service the city to his own profit.

“Tweed’s New-York Printing Company had grown to over 2,000 employees, making it one of the largest such firm in the country based on its city business,” writes Ackerman. And thus did the wealth trickle down to “dozens of Tammany men in local wards and neighborhoods—jobs, contracts, deals, pay-offs. New silk top-hats became the rage, and people starting calling newly-rich politicos the ‘shiny hat brigade.’”

Tweed made sure that he brought in and co-opted others at every turn. Wherever there was someone who would know that money was being embezzled, that someone was made to see how they could be enriched by not saying anything about it.

“As Tweed explained it later, they wanted ‘to reimburse … those who had advanced the moneys for the passage of the charter. [the legislative system that allowed him to steal so effortlessly from the public treasury]’ The legislative war in Albany had cost them a fortune, hundreds of thousands of dollars in bribes to key legislators. At its height, messengers literally had carried bags of cash from the city to Albany by train. To pay for it, Tweed had taken a collection from all his friends who stood to gain—the lunch club, top city bureaucrats, his Erie Railway cronies Jay Gould and Jim Fisk, and major city contractors. Plasterer Andrew Garvey and furniture maker James H. Ingersoll, for instance, each claimed to have paid $50,000 into the pool; furnisher-plumber John Keyser and Oakey Hall $25,000 each. The ‘Republican Legislature had to be bought, and, as I understood it, Mr. Tweed had to pay the money, and I thought it right and proper for him to reimburse himself,’ as Tweed’s clerk E.A. Woodward explained later. It was only fair.”

Even the city’s many newspapers were corrupted and encouraged to turn a blind eye to what everyone must have seen happening. “Many newspapers and editors depended on Tammany subsidies’ Ackerman notes,

“The Albany Argus, for one, received $80,500 in printing contracts from the city in 1869 and another $176,600 in 1870. Altogether, from January 1869 through September 16, 1871, $2.7 million in city dollars had flowed from the public’s coffers to the press, a financial pillar without which many on Printing House Square would crumble.”

The whole enterprise was a means of syphoning off money from those who had it and could be made to pay in taxes for what they never would have contributed to voluntarily. Few people could stand up to the corruptive power of a gravy train of “free money.” When the newsmen that published Thomas Nast’s cartoons exposing the Tweed Ring for what it was began to be threatened by Tweed’s power, they began to reconsider whether or not they should continue the fight. Ackerman explains that Tammany Hall retaliated by insisting that it would remove and destroy all of the New York City School textbooks purchased from the publishing company if it did not desist its attacks. Tammany, they threatened, would completely boycott the use of Harpers as a printer for any of the city’s printing needs.

“James Harper, oldest of the four brothers who’d founded the company in the 1820s, had died in March 1869; now, of the remaining three, Fletcher feared he might be alone in wanting to resist the pressure. His older brothers, 76-year-old John and 70-year-old Joseph Wesley, sympathized, but they had a business to run, hundreds of employees to pay, and could not afford to lose their largest single customer. If City Hall boycotted Harper’s textbooks, others might join them. The financial impact on the company if several large customers abandoned them in sympathy with City Hall could be devastating. Harper estimated the value of the existing textbooks alone at $50,000.”

Tammany’s control of the city’s finances could thus make a man rich or drive him to bankruptcy. And Boss Tweed controlled Tammany. And what made everything worse was the city’s power to borrow (perhaps even more dangerous than the power to tax as the power to borrow can be excercized without the payers feeling the pain).

In the 1860’s and early 1870’s many overseas investors were getting suspicious of the railroad companies. They began to move their investment money to municipal bonds – investment opportunities that involved loaning money to cities like New York for building projects. Unlike railroads, cities like New York, it was thought, would not be disappearing when it was time to pay up. The Tweed Ring’s great bonanza was the result of this trust. Without adding taxes to the burden of the rich, they could borrow money for the city and redirect it into their own accounts using the above tactics. “Tweed economics” says Ackerman, involved borrowing, spending, and keeping, always being sure to divert a portion to the people who could blow the whistle on what you were doing and to the masses below. One should not assume that Tweed’s system involved the exploitation of the poor so much as an exploitation of the wealthy. Under Tweed, the poor, who would have received nothing at all in an era where there were no government social services, benefited in some way.

“Few New Yorkers,” Ackerman explains, “noticed the cracks forming in the system” before Harpers and Thomas Nast and the New York Times began its expose’

“But overseas, foreign investors, particularly European bankers who held the city and county bonds, had seen the recent attacks in the New-York Times and begun to worry about their investments.”

American history seems to provide endless reformulations of this same story. An economic boom is often the result of an irresponsible infusion of foolishly loaned money which inevitably leads to a crash of confidence in the system on the part of the lenders. Where money is free, oversight is lax. Where oversight is lax, corruption and embezzlement are almost inevitable. Where embezzlement is allowed to continue for any length of time, a day of reckoning is imminent. And when the day of reckoning arrives, the loaners of money feel themselves burned and look elsewhere to invest, crashing the system. “The financial impact of all this,” Ackerman writes,

“—the bill-padding games on top of the bloated city pay-rolls, street widenings, and park improvements, a torrent of frauds building over time into a huge unseen bulk—began to weigh on the local economy.”

The city had borrowed from tomorrow’s wages to fund an orgy of consumption by a few unprincipled men and eventually, the piper would have to be paid. Tammany men would accuse the journalists who publicized their misdeeds as having caused the crash of the system - As though it would have gone on doling out free money forever if only no one had been told about the larcenies that they were committing – as though European and American investors would have continued loaning this money without a return forever. When TheNew York Times received insider evidence of the corruption from a Tammany Hall accountant and began to publish the extent of the fraudulence in the papers, accompanied by the incessant pillorying wit of Thomas Nast cartoons, the gig was up.

It is worth quoting the book at length here because the experience of New York in the 1870’s is not entirely different from what one might expect in America’s future if it does not get its debt addiction and government waste in order.

“Only in one place in New York did the message meet a unified response: on Wall Street. The city’s elite class of merchants and speculators who ran the Stock Exchange, the Gold Exchange, the Produce Exchange, and the hundreds of banks, brokerages, and retail houses, the capitalists who enjoyed the city’s finest luxuries, dinners at Delmonico’s, cigars at the Union League or Manhattan Club, musicals at Booth’s theater or the Grand Opera House, all recognized their immediate stake in the affair. As property owners and taxpayers, they’d been cheated. And worse, if the New-York Times stories proved true and if Tammany mismanagement were to cause the city’s fiscal house of cards to collapse, they stood to lose millions.”

“All through the Tweed years, New York banks and brokers had bought oceans of city debt, bonds and stock issued by Connolly’s Comptroller Office. Now, the city had bonds coming out its ears: Croton Aqueduct Bonds, Central Park Improvements Bonds, four classes of County Court House stock, Bonds for Repayment of Taxes, Assessment Fund Stock, Park Improvement Bonds, Street Improvement Bonds, to name a few. Total city and county debt had exploded from $36.3 million in January 1869 to over $97 million by the summer of 1871; at that rate it would reach the billions in another few years. Interest payments alone approached $10 million per year. If credit dried up and the city defaulted on its debt, the impact on New York’s wealthy would be devastating. Beyond wiping out their bulging bond portfolios, it would cripple their standing in Europe—still a principal source of capital for American finance.”

“British and German investors had been burned before by American investments, particularly railroad stocks whip-sawed by Wall Street manipulators. Many had purchased New York bonds as a safe haven and, if this too became a lawless frontier, their money might flee the country altogether. In fact, as the New-York Times had printed its disclosures that summer, bankers had begun cutting off credit to the city. In late July, the city put $40,000 in bonds up at auction one day and failed to receive a single bid. A few days later, fears spread that a major Savings Bank might buckle because it held millions in city debt that depositors now distrusted.”

“The respected Commercial and Financial Chronicle warned of a panic and, in Europe, the Berlin Stock Exchange banned New York city and county bonds from its official trading list. Worse still, the city had looming in its future an interest payment of $2.7 million due on its securities on November 1, just three months away. If its agents, Seligman, Belmont, and the rest, could no longer raise money in world markets, meeting it would be impossible. ‘They distrust our securities in London,’ one unnamed broker told the Tribune just days after the Secret Accounts appeared. New York stock exchange president Henry Clews warned of catastrophe:

“’[I]f our local government cannot be reformed, the credit of the metropolis will be gone and … the standing of every large [banking and brokerage] house will be more or less affected.’ Not surprisingly, an ‘insurrection of the capitalists’ quickly organized itself in the financial neighborhoods. Some 1,000 merchants rushed to sign a petition refusing to pay any more property taxes until city officials gave a full account of their spending and another group filed a lawsuit to block the Broadway widening job. ‘[W]e want to know where the money goes,’ an unnamed banker explained.”

So, who was responsible for blowing the whistle on this whole system? Ackerman details the roles played by key politicians, judges, and insiders. But the lion’s share of the credit is given to two men; the cartoonist Thomas Nast who launched a one man public relations war against the Tammany junta and a Vermont-born newspaper man by the name of George Jones (from Poultney, Vt.) As Jones began to courageously expose the corruption in the gizzard of the Tammany system, its benefactors came to plead with him to turn the white hot light of exposure away from their epic swindle. Here is how Ackerman tells that story.

“For God’s sake! Let me say one word to you,” Connolly’s blurted out. “For God’s sake, try and stop these attacks! You can have anything you want. If five millions [of dollars] are needed, you shall have it in five minutes.”

“George Jones stood at the door; if he savored this moment, he didn’t show it. The sheer size of the offer—equal to about $100 million in modern dollars—apparently caught him breathless. He remembered answering wryly: ‘I don’t think the devil will ever make a higher bid for me than that.’”

“As a young boy in rural Vermont, George Jones’ childhood friend Horace Greeley had once convinced him to skip church on a Sunday for a ‘loafing expedition’ in the woods. When Jones came home later that day, his father, a strict Baptist, confronted him. ‘I have been over the hills with Greeley studying nature,’ Jones remembered telling his father, who wasn’t amused. ‘Indeed!’ his father said, ‘well, then, come into the wood-shed and we will have another lesson in the study of nature.’ Jones’ father had died a few years later, but young George recalled the ‘lesson’ he learned in the woodshed that day. As a 70-year-old man, he would still point to it as a key event in his life.”

Ahhh …. Gotham City saved by a conscientious Vermonter’s boyhood memory of being taken to a woodshed. There is something deeply gratifying about that.

It may be instructive to look at this history of New York and make predictions about similar “problems” in our present situation. If history were to repeat itself, what might we predict will happen when similar waste and corruption are uncovered with respect to ballooning National debts today? I would suggest that we might predict the following ten things.

First, we might predict that somehow the whole thing will have its beginning in the desire of law-makers and public servants for more money that the public pays.

“The Gould-Vanderbilt face-off in Albany spawned a titanic orgy of bribes; legislators who normally earned $300 annual salaries bid the two sides against each other and demanded pay-offs of $5,000 or more for a single vote.”

Secondly, we can expect that soon after the fraudulent practices are exposed, the money flow from foreign investors and domestic producers is likely to dry up quickly. In the 1870’s, tax payers of New York insisted that they would not pay taxes until there was a system in place that allowed them to see exactly where the money was going. Foreign investments simply moved to other more honest opportunities.

Thirdly, we might predict that multiple government projects will ground to a complete halt as the money to pay the people who actually do the work disappears. As a corollary, we can expect that the criminals who have been skimming all the gravy off in the past will lay the blame for the recession on the people who exposed the corruption or the people who refuse to pay for it to continue.

“For years, Connolly had financed New York’s operations with debt, bonds and securities. He kept virtually no cash in the treasury. Since Barnard had now forbidden him from raising or borrowing a penny more, he couldn’t issue a single check or warrant. He had no cash to back them up. As a result, construction on city projects stopped, contractors went begging for payment, and thousands of employees, laborers who worked in the streets, the parks, and the stone quarries, all feared losing their pay.”

Fourthly, we might expect that those who have benefitted from the system will quickly squirrel away their profits, point their fingers at all the other people who are to blame, and disappear with the public’s money forever.

“Tweed certainly didn’t laugh, but he recognized the point: Millions had been stolen—but by whom? Until a specific person could be proven guilty, all remained innocent. Still, he and Connolly took precautions. On August 16, Tweed executed deeds transferring at least seven parcels of real estate to his son Richard—including the ‘circle property’ (today’s Columbus Circle), his farm at Fort Washington, and his home on Fifth Avenue and 43rd Street—to shield them from creditors, though he didn’t actually file the deeds; he simply held on to them. About the same time, Mary Connolly, Connolly’s wife, transferred ownership of $500,000 in United States treasury bonds from her own name to that of her son-in-law Joel Fithian.”

“Meanwhile, the birds started to fly. Andrew Garvey and E.A. Woodward both ran to Canada to avoid prosecutors. Keyser fled south to Florida, a short boat ride from Cuba. Ingersoll had disappeared the morning after Tweed’s arrest, telling friends he’d gone to Portland, Maine on a business trip. ‘He will be back here,’ Tweed told them, ‘he won’t run.’ In fact, Ingersoll ran to Canada, then France, having already sold four of his lots in Manhattan for $45,000 to finance the trip. Henry Hilton resigned from the Parks Department a few days later.”

Fifthly, we could expect that a few people, maybe even one, will be asked to play the part of the sacrificial lamb. The entire problem will be laid at the door of one particular “villain” who will be vilified for being stupid enough not to run when he had the chance. Someone will be blamed, maybe one or two will be actually punished with jail time, but the money itself will never be seen again.

“O’Conor had viewed the Ring prosecutions through a stark moral prism. His goal had been civic vengeance, to punish thieves and make them suffer visibly for their crimes. Now, he recognized the effort had largely failed. Most of the Tammany crowd had escaped his noose by fleeing the country or turning state’s evidence. No civil lawsuit had been brought against Oakey Hall and no effort had been made to extradite Sweeny or Connolly from Europe. Only a pittance of stolen money had been returned to the city and none but Tweed had spent much time behind bars. No wonder the public increasingly considered him a scapegoat.”

Sixth, we could expect that all of the culprits, the identified villain in particular, will point to the fact that he was a benefactor of the poor and downtrodden – that he was always generous (with other people’s money) – and that he was, in actuality a martyr for the cause of the poor who is only being persecuted by the greedy “top one percent” because he cared about the man on the street and his family. The villain will accuse law enforcement of villainy and insist that he is being caricatured by a well-funded right wing media conspiracy.

“Harper’s Weekly boasted that summer that Tweed had snapped at seeing some of the Nast cartoons, saying he ‘doesn’t care a straw for what is written about him, the great majority of his constituency being unable to read, [but] these [Nast] illustrations, the meaning of which everyone can take in at a glance, play mischief with his feelings.’”

“For every supporter like U.S. Senator Roscoe Conkling who called the Times’ stories ‘the most brilliant dashing foray seen in the American press in my memory,’ another saw them as demagoguery, character assassination, and politics.”

“The latest [Thomas Nast cartoon], called “Tweedledee and Sweedledum,” showed Tweed and Sweeny dressed as clowns named ‘Clown’ and ‘Pantaloon,’ with Tweed’s character wearing a diamond big as a grapefruit lying atop his bulging stomach. The cartoon showed Tweed happily handing out fistfuls of cash from a vault labeled ‘Public Treasury’ to poor men, women, and children while plotting to keep most for himself. ‘Let’s blind them with this,’ Clown (Sweeny) says to Pantaloon (Tweed), cash in hand, ‘and then take some more.’”

Thus, we would expect that even in the face of the most obvious evidence of corruption, the guilty will remain popular among the lowly. “The odium heaped on [Tweed] in the pulpits after he died, still in confinement,” says Ackerman, would not exist in the “lower stratum of New York society.” The same could be predicted today of those who plunder the makers on behalf of themselves and the takers.

“’Who else would ignore oceans of scandal and applaud a corrupt thief?’ Godkin pointed to Tweed’s power, his web of city handouts—“offices, sinecures, contracts, public works, untried indictments, suspended sentences, penalties, licenses, ordinances, so on’—as his tool to bribe half the voting population of New York City. But even so, Tweed evoked loyalty on these streets with his larger-than-life aura: The Boss. To many, the charges against him seemed unreal, the numbers incomprehensible, a set-up job. At a time when laborers earned $2 per day and $5,000 per year could buy affluent comfort, who could imagine anyone stealing millions? The New-York Times stories sounded like fantasy, hysteria, while Tweed had always been their champion in real life, providing jobs, charity, and, through his Tammany clubs, a web of friendship in a cold city.”

We might also expect that after the whole sordid affair is over, it will be primarily the lawyers who prosecute and defend the guilty who will get something:

“Just as damning were their conclusions about the prosecutors. Of all the missing money, their six years of legal wrangling had recovered only $1,119,000, a tiny percent of the total. The bulk came from two dead men: $558,000 paid by James Watson’s estate and $406,000 from Peter Sweeny’s dead brother James. At the same time, Peckham and his lawyers had charged over $240,000 in fees, wiping out a large fraction of the recovery. ‘At present all the thieves, with one single exception [Tweed], are at large, several of them are living in or near New York, in elegant ease, if not in ostentatious luxury, and all of them claim entire immunity,’ the aldermen found.”

Ninthly, we might expect that some sort of Civil Service “reform” will be enacted in lieu of the moral deficit that created the problem and, within a few years, some other mechanism for fraud and abuse will be invented to circumvent its intentions. Practitioners of such frauds will have to, for example, consume their “winnings” in a less conspicuous way.

“Tweed inherited a culture of graft endemic to New York City for generations and pushed it to its logical extreme, forcing the reformers to crack down. After his excesses, no city in America could tolerate his style of wide-open graft or ballot box abuse. Urban corruption didn’t disappear but it evolved and became more subtle. ‘A villain of more brains would have had a modest dwelling and would have guzzled in secret,’ E.L. Godkin wrote in the aftermath.”

Embezzlers will simply have to “guzzle in secret.”

Lastly, historians will look back and shake their heads and wonder if people will be dumb enough to let it happen again.

“It’s hard not to admire the skill behind Tweed’s system, though. The Tweed Ring at its height was an engineering marvel, strong and solid, strategically deployed to control key power points: the courts, the legislature, the treasury, and the ballot box. Its frauds had a grandeur of scale and an elegance of structure: money laundering, profit sharing, and organization. It took the brilliance of a Samuel Tilden just to unravel the basic cash flow.”

“At its foundation, Tweed’s system had an irresistible political equation: Everyone benefited, rich and poor alike, and nobody seemed to get hurt. Money for graft as well as good came mostly from outsiders. Taxes stayed low; Connolly financed city operations mostly with debt, selling bonds and stock to investors in Europe and on Wall Street, pushing off payment until another day.”

So long as the harm was done primarily in London or in Germany, was any harm really being done?

Investors in American bonds all over the world would do well to pay attention.

Question for Comment: “Easy come. Easy go,” they say of money too conveniently acquired. When it wasn’t made by you, you treat it differently it seems. You don’t really bother to “pay attention” to it so much. How do you see this reality playing out in your personal experience?

Do you see the Tweed Ring scandal as bigger or smaller than what goes on in government finances today?

02/14/2015

I wish I could recommend this book but I fear that it falls short of just the sort of thing I enjoy when reading history. It is well researched and comprehensive mind you but it seems to lack a central argument. There is nothing that builds towards a conclusion; nothing that makes you change your mind. It sets out to inform and wanders all over the late 19th century business world in doing so. You never quite know if you are off track when he goes into diversions because you really are never quite sure where he is heading so that you could know.

The title is a bit misleading as it promises to explain just how John D. Rockefeller, Andrew Carnegie, Jay Gould, and J.P. Morgan restructured the American economy. While it does so in many ways, it attempts to do much more as well, going into details about the development of replaceable part manufacturing, gold corners, and the management philosophies of Frederick Taylor as well. It is really a book about the period more than it is about these men in particular.

I think the main subject is there. It just gets lost in the weeds of interesting but perhaps irrelevant detail. What does emerge from those weeds as interesting (at least to me) is just how differently these different men went about amassing their millions of dollars. I was somewhat reminded of Civil War Generals who might go about their individual fights with different temperament driven approaches. One could compare Stonewall Jackson to George MacClellan as easily as compare Jay Gould to John Rockefeller. Gould, Carnegie, Rockefeller, and Morgan all had different stances on morality. They had different approaches to risk. They had different approaches to building a corporation. They had different ideas about what to do with money once made. And they had different beliefs about human nature to contend with.

Some cared about respectability and some cared only for profit. Carnegie believed in cutting costs, automating, pushing prices down and taking market share while gaining scale. Gould was always attacking. His arenas were the railroads and telegraph systems. Rockefeller was the supreme manager. He took over the whole industry before anyone knew he was attempting to, preferring to work in secrecy behind the curtains. Often Rockefeller would have members of his trust recruiting for him, getting smaller fish to sign up without even knowing that they were being assimilated by Standard Oil. Morgan, says Charles Morris, was the regulator in favor of reigning in the other three. Morgan strove to develop long term trust in the markets, in banks, and in Wall Street. Morgan was the one that overseas financiers trusted and he often laid down the rules for corporate financing, fair treatment for investors and ethical behavior to build long term trust.

I confess, a part of me went into this book hoping to discover the secret to amassing wealth without work. This is not the sort of book that even attempts to assemble such a formula but here are some things that I can pass on from my attempt;

First, get started doing something. Gould started as a teenager setting up a tannery. Carnegie started as a telegraph operator (great place to gather information). Rockefeller was a commodities “broker” during the Civil war supplying the Union army from Cleveland. Morgan was born into wealth and learned from his father about banking. Each of them had a knack for learning and for arbitraging their experiences into promotions or entrepreneurial enterprises.

Second, become adept at selecting and rejecting partnerships. Each of these men had a history of aligning themselves with talent in their fields. Carnegie co-opted the managerial talents of others, Rockefeller made ample use of chemical experts, Gould made short term alliances with the likes of Daniel drew and Jim Fiske, and JP Morgan had allies all over Europe. You might say that they were all adept at forming strategic networks – even nefarious ones. These abilities to forge and make use of networks were the primary competitive advantage that they brought to their companies. The fact that they would often “eat” those networks when they grew powerful enough to do so does not disprove the point. Many of the men Rockefeller absorbed took shares in the company as payment and went on to do better than they would if they had remained independent. Not everyone who can refine oil can run a business.

At this point, the skills begin to multiply. All of these men were adept at deal making though they each went about the process in different ways. Sometimes, they used cold reason to get competitors to fold or join them. Sometimes they used secrecy and stealth. Sometimes they applied outright brute financial force. Rockefeller would sometimes open his books to a prospective seller just to make it obvious that resistance was futile. Sometimes Carnegie would haggle over pennies on the ton of steel. Sometimes he would inflate his profitability before a sale. Sometimes he would take advantage of fears he himself planted. Always, there were people who wanted something and if what they wanted was less than they deserved, that was not Rockefeller’s or Carnegies or Gould’s problem. When Rockefeller made deals, he valued speed and time more than money when shorter sighted business owners would have sacrificed long term advantage for short term profit. As Morris puts it, “he was faster in apprehension and more deadly in execution than his competitors.”

Among the business tactics scattered throughout the book, the following is just a partial list. Carnegie and Rockefeller were big on cutting cost and eliminating waste. They imported machines and constantly expanded markets while creating new products. Both were proponents of constantly upgrading quality to put their products beyond the reach of competitors. Gould, even more than Carnegie and Rockefeller was a manic for eliminating competition even when forced mergers were required to do so. All of these men lived to expand and rarely took “profit taking breaks” from their relentless pursuit of expansion. They were all big on re-investment, though Gould was more than happy to bid his own company’s stock prices up just to sell them for profit when the time came. Carnegie was more than willing to cut wages to protect shareholder profits and future investments. Gould was not adverse to shamelessly bribing legislatures to rule in the favor of his interests. The others were less overt. Carnegie would break unions, Rockefeller would pre-empt them. Gould would cut deals with them. All but Gould projected images of respectability to forestall regulatory interference with their ongoing economic campaigns. Morgan specialized in portraying respectability and communal virtue.

Morris notes that “Morgan had vastly overestimated the ethics of his colleagues.” He also notes that “most of Rockefellers violations were violations as the law as reformers wish it existedNot as they were.” .[italics mine]. Carnegie could be uncanny in his capacity for hypocrisy and for hiding his own greed behind the decisions of his subordinates. Gould was just … unabashedly competitive. He had a knack for being wily about legal terms and fine print, exacting every dime of profit and securing every nickel of advantage out of any vague language.

All of these young men were in their twenties when Abraham Lincoln was President. Perhaps they all heard his speech in celebration of free markets.

“The prudent, penniless beginner in the world labors for wages awhile, saves a surplus with which to buy tools or land for himself, then labors on his own account another while, and at length hires another new beginner to help him. This, say its advocates, is free labor - the just, and generous, and prosperous system, which opens the way for all, gives hope to all, and energy, and progress, and improvement of condition to all. If any continue through life in the condition of the hired laborer, it is not the fault of the system, but because of either a dependent nature which prefers it, or improvidence, folly, or singular misfortune.”

[Mmm … I have never hired anyone to do anything. I wonder what is wrong with me?] The Civil War Lincoln had launched was itself a great cause of business consolidation as many men left their time of service with connections all over the United States and skills to organize them with. Would Lincoln have approved of the trajectory that Carnegie, Gould, Rockefeller and Morgan embarked on? It would seem that Lincoln was no opponent of advancement and increase of scale. But in so far as those systems of massive scale began to make it impossible for “the prudent penniless beginner” to earn enough to “buy tools for himself” and eventually “hire another beginner to help him” he might have found himself closer to Jefferson than to Hamilton. Oh Mr. Lincoln. Come back and run again.

Question for Comment: Put yourself back in time to the 1860’s when these men were getting their start. Would you have picked railroads, steel manufacturing, oil, or finance as your path to “the good life”? Or do none of those appeal?

It’s odd how sometimes we can wake up in the middle of a moment of our day and wonder just whose life we have become ensconced in. In May in the Summer, an Arab American woman returns from New York to Jordan a month before her planned wedding to a Muslim professor at Columbia University. Re-establishing her relationships with her Evangelical mother, two sisters, father, and father’s new wife proves to be a complicated endeavor. It almost seems like every member of the family is a loyalty and identity dilemma of some sorts. Her father seems genuinely repentant and she has to decide whether or not to forgive him or not for his past mistakes (not all sisters are inclined). Her mother refuses to attend the wedding between her daughter and a Muslim man (though her sisters have no problem with it). One of her sisters seems to be gay and there is contention over how to respond to that. Her father’s new wife appears to be a really nice person and deciding whether or not to reciprocate, given the feelings of her mother, poses a conundrum. All of the sisters must wrestle with their identities as Jordanians (by their mother’s side) and Americans (by their father’s side). In May’s mind, her choice of a husband is a perfect one but never-the-less, she cannot help but feel more comfortable in the company of a Jordanian adventure guide who accidentally stumbles into her life.

There is a moment in the film where May’s mother says to her “I have no idea what I am doing” and that may well be the motto for most of the characters. They seem to be groping in the dark in search of themselves, trying to find their way out of the lives they have “fallen into” and into the lives that fit them – souls who have woken up in the wrong exoskeletons. I was reminded of a passage in Chaim Potok’s The Chosen (I was just discussing it with my class the other day). It is towards the beginning of the novel where Reuven, a rather modern Jew, finds himself looking at Danny Saunders, the son of a local Hassidic rabbi.

"I looked at him [Danny], and suddenly I had the feeling that everything around me was out of focus...And here was Danny Saunders talking English, and what he was saying and the way he was saying it just didn't seem to fit in with the way he was dressed, with the side curls on his face and the fringes hanging down below his dark jacket."

"I'm all mixed up about you, [Reuben says,]

“I'm not trying to be funny or anything. I really am mixed up about you. You look like a Hasid, but you don't sound like one. You don't sound like what my father says Hasidim are supposed to sound like. You sound almost as if you don't believe in God."

It makes you wonder; “How should families respond to their members when they elect to take routes through life that deviate from the family ideology?” “What loyalties do we owe to our families when we start feeling comfortable being different than the people we were supposed to be?” When families are internalized into our personalities, how do we ever leave our families? Every character in this film seems to be torn in some way – torn between their duties and their inclinations, their loyalties and their internal compasses, their identities and their dreams, their pasts and their hopes for the future.

Question for Comment: “Every person is a child at home.” Is that true for you? Can you be “home” and be your grown-up self at the same time?

02/08/2015

Michael Prell explains what he is up to in writing this book on his website. We have me explain it when he does.

“Almost everyone loves underdogs. But almost no one has studied why we love underdogs.

So that’s what I did. For five years, I conducted perhaps the most comprehensive study - ever - on why we love underdogs. I worked with university researchers, professors, economists, historians - even Tony Robbins, who’s helped 3 US Presidents and over 50 million people and studied what makes people tick for more than 30 years.

And what I found was: our love for the underdog…has changed. For many people, it’s no longer enough to just stand up for the powerless, the underdog - they must also hate the overdog - or those who have more power. I gave this belief system a name - Underdogma - which is the reflexive belief that, if you have power, you can do no good, and if you’re a powerless underdog, you can do no wrong.

And here’s the key: when people choose which side to root for - underdog or overdog - it actually doesn’t matter which side is right or wrong. What matters is: which side has less or more power. If you have less power, you’re automatically good, and if you have more power, you’re automatically bad.”

For Prell, this predisposition to be against power and for the powerless, regardless of what the powerful are doing with their power or how the powerless got to be powerless or what the powerless would do if they had power is at the heart of a good deal of America’s dysfunctionality right now. He argues that sometimes, it is a good thing that people with no power are kept from having it. And sometimes it can be a universally detrimnetal to have certain powerful people displaced. Prell insists that while it is sometimes true that people with power have acquired it for nefarious ends and by nefarious tactics, it is not always thus or even often thus. He insists that not all powerless people are powerless for equal reasons. A person can become an underdog by sabotaging their own success, by being lazy, or simply by expending their life-energy on tearing other people down rather than building themselves up.

He cites numerous examples of the phenomenon, referring to one study where people are given money in unequal amounts. When the “have-nots” are asked if they would be willing to spend 25 cents for the ability to take away a dollar from one of the “haves” a majority of people in the experiment sacrificed the money to do so. Classic underdogmatism.

Virtue is not a characteristic intrinsic to powerlessness. Nor is vice a characteristic intrinsic to power. A Native American Indian, like Chief Joseph may be regarded as virtuous but it is not simply something that can be assumed simply because he was bullied by white Americans. Similarly, Geronimo may well have been powerless to defend himself against the American army but that does not automatically make him a repository of virtue. Asking oneself who would win in a fight is not the same question as asking “Whose side is more virtuous?” One needs to consider outcomes. If all parties vying for power had none and if you did not know who you would be in the story after power was delegated, who would you want to have power?

Prell is debunking the notion that determining wealth or power in society can be used as a measuring stick for determining virtue.

For a good portion of his argument, I am right with him.

Question for Comment: It just seems like we humans are always looking at an easy way to differentiate the righteous and the unrighteous by some easily identifiable rubric (race, nationality, religion, income, access to power, etc.) Can you think of ways in which powerful people might effectively use this human predisposition to favor underdogs to maintain or augment their power?

02/02/2015

“We whites have been land robbers and sea robbers from the remotest time,” the novelist Jack London said, “It is in our blood, I guess, and we can't get away from it.”

The Civil War was a colossal multi-year hurricane or plague in American history and it left an indelible mark on the people who experienced it. For those who went through it, in the words of Charles Dickens, their war experience “was the worst of times; it was the best of times.” For those who survived the carnage, it was a life experience that could not be matched by experiences before or after. For a generation, the war would be remembered as the place where manhoods were proven or disproven. It was the great and most meaningful life-cause of soldiers on both sides. Providentially (or coincidentally), Darwin’s Origin of the Species was published in the last year of the war and took over the minds of young men and women in the decades after, re-emphasizing the message that heroic epic struggle is the ultimately the essence of life.

One is tempted to conclude from Lears’ argument that the period between the end of Reconstruction and the end of WWI is simply a period wherein the American survivors of the Civil War got lost and then found their way back to a cause worthy enough for them to re-enlist. Indeed, one might surmise that by 1917, the war’s glories had been widely broadcast while the war’s horrors had been forgotten. By 1917, war itself had returned as a viable mechanism for acquiring meaning and immortality. Young men were yearning for something to give their “last full measure” to – something worthy of a Civil War monument of their own someday. The central drive of this fifty year period (a generation) was the search for revitalization according to this author – a quest for meaning in the regenerative experience of combat.

“The half-century between the Civil War and World War I was an age of regeneration,” Lears says in the introduction,

“Seldom if ever in our history have longings for rebirth played a more prominent role in politics. By tracing the interplay between private desires and public policies, I offer a new lens through which to view a period of critical transformation. . . .

“The rise of total war between the Civil War and World War I was rooted in longings for release from bourgeois normality into a realm of heroic struggle. This was the desperate anxiety, the yearning for rebirth, that lay behind official ideologies of romantic nationalism, imperial progress, and civilizing mission – and that led to the trenches of the Western front.”

Lears suggests that the memorialization of Civil War dead at places like Gettysburg or town greens in a thousand towns north and south of the Mason-Dixon, left the rising generation with the belief that fighting for a righteous cause was to be regarded as the apex of a life truly well used. “Rather than a struggle to end slavery,’ Lears argues,

“the [Civil] war became [in historical memory] a testing ground for personal heroism; the theater of the sublime where white men, North and South, had repeatedly demonstrated their valor in ways that made mere politics seem venal and corrupt.”

“By 1891, the journalist John Robes could look back at the war ‘as we see it now’ and declare it ‘an exhibition of the Anglo-Saxon race on trial,’ one that served ‘to bring out the resolute and unyielding traits belonging to our race, above all, its unconquerable determination.’ The politics of the war disappeared in the fog of racist platitudes, a celebration of Anglo-Saxon will.”

Some 600,000 soldiers had lost their lives in the Civil War (two hundred 911’s) but each and every one had been celebrated for their willingness to set aside their own lives for the cause of their nation. Darwinism seemed to give an even greater sense of meaning to lives of struggle as the fight was no longer just for country and Constitution but for race and species. "The snowy heights of honor" were accessible to men in gray as well as blue according to Justice Oliver Wendell Holmes, indeed, to anyone who transcended “the worldly rewards of ambition, who clambered beyond and above the gold fields."

The tragedy that many young people felt in the years following the Civil War was that there was no cause worthy enough to sacrifice a life of money-making to. "Whether just or unjust, wise or unwise, an aggressive policy toward anything will be popular… in harmony with the traditions, the practice and the mission of the Anglo-Saxon," wrote Gen. M.M. Trumble in Open Court magazine at the time. "Given the resistless march of Anglo-Saxons, it may be that they're fighting habit has become an instinct that must be gratified."

[Alfred] Mahan was the leading big-navy imperialist, says Lears of the grand wizard of all things imperialist, “and imperialism was the most important political form of late 19th century longings for regeneration.” “Yearnings to recapture the heights of civil war heroism,” he says, “combined with Anglo-Saxon racism, fears of overcivilized decadence, and providentialist faith in American mission” to stimulate the pent up militarism of the next century’s wars. Perhaps it was just impossible to raise a generation to revear the war hero while expecting them not to emulate the war hero?

One gets the sense from reading the sources on this period that young people were almost disappointed to have no Civil War to test their metal with. If life were struggle, than life without war was not really life. And yet war had to have a legitimate and even sanctified cause to qualify itself. Lears notes that young college men were almost nostalgic about what opportunities for really living were denied them in a world after Appomatox. They sought outlets for the instinct where they could he says.

“In what would become a central pattern of revitalization for upper-class men, frontier experience provided for us opportunities for virile self assertion.”

It was in this spirit that explains why future President, Theodore Roosevelt, headed out to the Dakotas to be a cowboy in the summers. "Unless we keep the barbarian virtues, gaining the civilized ones will be a little avail," he characteristically asserted. “By barbarian virtues Roosevelt meant courage, stoicism, and endurance,” Lears adds, “– everything that constituted the physical side of conventional manliness. These values could easily be pressed into the service of empire.” With the frontier officially closed, he says, “upperclass men constructed an ideal wild nature as a backdrop, a challenge, and a formula for masculine struggle.”

But to suggest that all Americans sought this revitalization in the context of military expansion and conflict is to over-simplify. Militarism was merely the most popular of expressions, manifested first in wars against Indians and then against the Spanish and then the Mexicans and finally Germans. Others sought to acquire a sense of meaningful experience of life in various social struggles prevalent in the day. Social reformers could enter into mortal combat with poverty, corruption, illiteracy, or alcoholism. Settlement house work, for instance, says Lears,

“like social reform in general, became an alternative to militarism for romantic young professionals who sought regeneration through authentic experience. Certainly it worked for [Jane] Addams; observers describe her during the early Hull House years as ‘keen, alert, and alive in every fiber.’ War was not the only way to grasp real life.”

Even in higher academics, a world not generally known for its predisposition to take actual risks that could simply be contemplated, Harvard’s William James, characterized the life-well lived in the following words:

“if this life be not a real fight, in which something is eternally gained for the universe by success, it is no better than a game of private theatricals from which one may withdraw it will.”

Lears observes that religious meaning was being transformed into more secular meanings and the Protestant mission of converting souls (and after all, for Puritans, isn’t that what the great fight going on in this world was all about?) was being transformed into a social movement to improve material lives. “The language of rebirth had begun to refocus from soul to body,” he says, “and from religion to commerce. Selves could be revitalized through consumption as well as conversion.”

Advertisers began to capitalize on the “regenerative” properties of the products they shilled. Products could give you the “vitality” that lives of victorious struggle used to. In the face of this cultural pressure to live an authentic life of experience and significance (or purchase its equivalent in a tonic), the business community seemed to be constricting the possibility of actually living heroically. It was as though soldiers went from being an important part of a grand cause to being a cog in some capitalist’s plan for monopolizing his industry and maximizing profit. New managerial tactics were removing the last vestiges of anything creative or heroic about work. Separations of labor were being diced so thin as to make every man’s work replaceable and thus unimportant. The trajectory of business was ever moving towards efficiency and profitability, trading away the psychological benefits of meaningful, psychologically satisfying work for a penny or two per million. The following excerpts can be appealed to as evidence.

“Throughout the 1880s, despite dips in the business cycle, Carnegie steel business was riding high, increasing its productivity by over 800%. Much of this was squeezed directly out of the workers by keeping wages low, hours long, breaks infrequent, and the threat of layoffs constant.

“The real problem for workers, the reason that labor strife intensified throughout the 1880s and early 1890s, was that wage cuts were part of a comprehensive managerial strategy aimed at more efficient productivity.”

“Carnegie and Frick were determined to put workers on two twelve hour shifts rather than three eight hour shifts, the concession the union had won a few years previously. The elimination of one entire shift would throw hundreds of workers out of work and reduce the remaining ones to beasts of burden. Carnegie simply could not grasp the deadening impact of the twelve hour day.”

“The pores in the working day were filled,” Lears says of the average man’s occupational existance. Growing disparity between desires and realities inevitably led to conflict between capital and labor. What was happening in the American economy was removing the heroic from life just as culture was celebrating the heroic in the lives of its Civil War veterans. American laborers simply could not compete with the Chinese except by lowering their standard of living Lears suggests. “The food and shelter an Irishman gives to his pig would suffice for the wants of a Chinese” The New Englander magazine reported, “and while this is so, the Chinaman can compel the Irishman to descend the level of his pig.” The loss of a sense of the heroic life in an age where it was elevated to the highest value must have seemed cruel to those experiencing the disparity. I suppose it is something like people today who are constantly seeing supermodels and super athletes rewarded while they themselves are becoming more and more unhealthy.

Lears draws the obvious linkages between the domestic economy and the rise of American imperialism. The psychological impoverishment of the American labor force led to a demand for higher wages and shorter work days and for those wishing to demonstrate martial bravery, a place and opportunity to exercise it (The Philippines or Cuba and beyond). The loss of meaning in work meant that labor had to find a means of regaining meaning after. “It is about this time that we see the beginnings of the search for social comity through increased abundance,” Lears writes,

“ ... The more popular idea was that abundance would be achieved through Empire – first the internal empire of the trans Mississippi West, which would provide the safety valve of cheap lands that would siphon off restless workers; then the external empire of investment opportunities abroad that would create new markets and new wealth for all our citizens. So, at any rate, the empire boosters begin to claim. Both internal and external empire would be guarantors of abundance, and abundance in turn would bring about social peace.”

I will go out on a limb here and say that Americans needed to believe that they were serving a purpose and that ultimately, the purpose that best served its psychological void was that of fighting an evil in defense of the weak. The phenomenon is well stated in the recent movie American Sniper. Navy SEAL sniper, Chris Kyle’s father says to him as a boy, “There are three types of people in this world: sheep, wolves, and sheepdogs.” Kyle joins the military specifically to fulfill a deep desire to be a “sheepdog.” He returns to Iraq for four tours so that he can fulfil that role, racking up a 160 “kills” as an elite sniper despite the psychological toll it takes on him.

It is only in this context that one can even begin to try and understand what the driving force behind the appalling practice of lynching black men in the South during the period being considered in this book was. “Lynching was a reassertion of the link between whiteness and manliness and the ritual regeneration of both,” Lears writes,

“Repeatedly, southern white men – senators, journalists, even jurists – invoked the protection of white women to justify the torture, dismemberment, hanging, or burning of black men who may or may not have actually committed any crime at all and who in any case had never been given a trial.”

The book mentions a speech given by Rebecca Latimer Felton from Georgia, who was the first female member of the United States Senate: "If it takes lynching to protect women’s dearest possession,” she insisted, “then I say lynch a thousand a week if it becomes necessary." She challenged white men in the South to “protect” white women from what she was convinced was a wolfish epidemic of African male lust. Thus was the need for meaning and racism mixed into an elixir of injustice that would shamefully plague American life for decades.

But there is more. Lears asks us to see other elements of the years between the Civil War and WWI as a consequence of this heroism-void created by war and war-memorialism. He sees it as a significant causation of other reforms of the era as well. Few writers had more influence over Theodore Roosevelt than the minister-imperialist, Josiah Strong, who made the case that there was an iron link between race, imperialism, and prohibition for example. “Is there any room for doubt,” Strong asked the American public,

“that this race, unless devitalized by alcohol and tobacco, is destined to dispossess many weaker races, assimilate others, and mold the remainder, until, in a very true and important sense, it has Anglo-Saxonized mankind.”

The phrase that was often used a hundred years ago was “muscular Christianity” – a Tim Tebow-like appeal to the development of pious pectorals – the use of manly strength for a divine purpose. It was the notion that served as the ideological spring out of which came the YMCA and the more modern Fellowship of Christian Athletes and “Promise Keepers.”

Lears suggests that this desire for revitalization was also what lay behind the growing labor unions and farmers alliances of the period. While clearly, these movements were triggered by issues of money, they were really about the perceived dehumanization of heroic labor. They were about men not being allowed to succeed as men. What seems to have been happening was merely this: The system was ever more being structured so that only the best of men could succeed (isn’t that what social Darwinism was all about?) The system no longer cared if masses of men were forced to feel themselves less than men so long as some men could feel themselves to be supermen (ubermench). Monetary policy, labor policy, tax policy all reflected that singular value system. The heroic success of the few mattered more than the tragic pain of the many. Thousands could be crushed so that a few could not be touched. This was the cause of agrarian decline, the Pullman strike, the Homestead Strike, the Haymarket Square riots, and Coxey’s army.

"Most of us crossed the Mississippi or Missouri with no money but with a vast wealth of hope and courage," one Kansas official later recalled.

"Haste to get rich has made us borrowers, the borrower has made booms, and blooms made men wild, and Kansas became a vast insane asylum covering 80,000 square miles. When the boom collapsed in the late 1880s, the farmers were left with huge mortgages on overvalued land.”

“Conditions in the countryside were exacerbated by monetary policy at both the federal and state level. The Civil War had been financed with paper currency – ‘greenbacks,’ as the dollars were called because of the green ink with which they printed. But in 1875, the Grant administration persuaded Congress to authorize the resumption of specie payment – that is, to return to paying coin for government obligations. The problem, for the general public if not for the bondholders, was that the dollar had appreciated sharply in value since the war. While the Civil War had been fought with 50 cent dollars, its cost would be paid in one hundreds cent dollars.”

Labor countered that there was something heroic and manly about labor – about honest work – about being a “producer.” In contrast, it argued that the money was all flowing to those with the least manly of traits. All the work was being done by the “makers.” All the rewards were going to the “takers.” “The language of manliness melded rural and urban discontent in a producerist worldview,” Lears suggests,

“Producerism reaffirmed the ties between farmers and workers, underscoring their common attachment to manly ideals of economic independence and identifying their common enemies as bankers, speculators, and loansharking merchant – parasites who produced nothing but made money only by manipulating it, sucking the life blood from the honest labor of farmers, mechanics, and small proprietors. These groups together constituted the producing classes.”

No one cut the mood of this inversion of working values – this masculine apocalypse better than Ignatius Donnelly of Minnesota.

“We meet in the midst of a nation brought to the verge of moral, political, and material ruin. Corruption dominates the ballot box, the legislatures, the Congress, and touches even the ermine of the bench. The people are demoralized.… The newspapers are subsidized or muzzled; public opinion silenced; business prostrate, our homes covered with mortgages, labor impoverished, and the land concentrating in the hands of capitalists. The urban workmen are denied the right of organization for self-protection; imported pauperized labor beats down their wages; a hireling standing arm [The Pinkertons], unrecognized by our laws, is established to shoot them down, and they are rapidly degenerating to European conditions. The fruits of the toil of millions are boldly stolen to build up colossal fortunes, unprecedented in the history of the world, while their possessors despise the republic and endanger liberty.”

Lears underscores the profoundly important debate that was raging in American culture and economy. In a world of survival of the fittest, must any regard be paid to the pain of the “less fit”? Those at the top, people like Carnegie and Rockefeller and Morgan saw it as their task to provide freedom for the cream to rise. It was not their job to protect what was not cream. Here is how Lears explains it.

“The crash of 1893 made it clear that Morgan still had work to do. In his view, the wave of railroad failures only demonstrated what he already knew: the free market in railroads was too free. The field was cluttered by inferior players, sometimes nearly bankrupt and just limping along. The responsibility of the bankers was to discipline the industry by strengthening the lines whose earnings indicated that they deserved strengthening, allowing them to them to eliminate or absorb the weaker ones and confirming the ‘natural monopoly’ of the most efficient road in a particular region.”

Mark Twain asserted that the God of these men was money and how to get it was their religion. It was not the job of the “league” to protect the dignity of the Oakland Raiders or Tampa Bay Buccaneers. It was the job of the league to make it possible for the Bradys and Bellichecks to keep winning Superbowls as long as their superior wits and right arms could win them. And as that assertion became ever more clear, the “producers” revolted and organized themselves behind their own champions (William Jennings Bryan in particular). Bryan, radicalized by the economic depression, “spoke out for a graduated income tax and federal insurance on bank deposits; he attacked Cleveland's intervention in the Pullman strike and endorsed the workers right to form a union and to strike.” Later he took upon himself the cause of currency policies that favored the debtors over the creditors. Bryan asserted that a campaign against monopoly and economic strength was a “manly” cause. And many rallied behind him in it.

But ultimately, not enough. The election of the bellicose and belligerent Teddy Roosevelt signaled that country was gearing up for another round of martial-minded manliness madness. Excuses were found for militarism in Central America and the Caribbean.

“As Richard Harding Davis, an upper-class adventurer turned gringo journalist, reported in 1896: the Central Americans are like a gang of semi barbarians in a beautifully furnished house, of which they can understand neither its possibilities of comfort nor its use.”

Christian virtues could no longer restrain human instincts for aggression.

“Indeed, Woods Hutchinson said, Christianity was an almost complete failure as a factor in the world's progress, until it was grafted upon the races whose irresistible vigor and sturdy combativeness made a fighting religion of it, in spite of its doctrines.”

“TR called for life to be lived in the same spirit that animated the Union Army during the Civil War, Lears writes, “– heroic struggle.” "The truth is," William Howard Taft, Presidential successor to Theodore Roosevelt said of the latter, "he believes in war and wishes to be a Napoleon, to die on the battlefield. He has the spirit of the old berserkers." (Ironically, Teddy Roosevelt’s father had paid someone as a substitute for him during the Civil War and his son may well have been compensating for that family shame.)

Men trying to be at least as manly as their Civil War daddies? Is that what lynching and imperialism and Prohibition and “Free Silver” economics and the YMCA and labor strikes and WWI trenches comes down to? It is an interesting lens and a debt of gratitude may well be due to Jackson Lears if this fundamental problem of an age does indeed prove useful at explaining its disparate pieces. I will close with a few paragraphs that would suggest that this filter may be helpful for explaining other phenomenon of the period as well (For example, can it help us to understand the place of sports at the turn of the century or the nature of the era’s dances or the popularity of a certain entertainer or the origins of the conservation movement?

I offer the following excerpts and leave it to the reader to decide.

“Houdini's performances epitomized popular longings for escape from the constraints of routine and normality but also from a subtler disease, a feeling that one had somehow lost contact with real life. In turn of the century American culture, cravings for intense experience animated everything from the vogue of romantic adventure novels to the spreading of the popularity of wilderness recreation. Americans yearned to reconnect with some pulsating primal vitality –vicariously, reading on the couch in Hartford, or directly, hiking on the trail in Yosemite. Often the intense experience had no larger purpose beyond a renewed sense of well-being. The reverence for life as a value in itself could be traced to romantic origins in the writings of Wordsworth, Emerson, and Thoreau. But never before had life-worship acquired such a wide following. Never before had so many people thought that reality was throbbing with vitality, pulsating with excitement, and always just out of reach.”

“These explorations, disparate as they were, stemmed from the common longing – the desire to smash through the evasions of late Victorian life and immerse oneself in a flood of unmediated experience.”

“The revolt against domesticity was part of a broader revolt against the modern fragmentation and mediation of direct experience. Modern forms of knowledge sliced experience into specialized disciplines. Modern industry removed work experience from primary processes of making and growing. Modern capitalism placed a premium on the manipulation of often deceptive appearances and eventually modern technology insulated the moderately affluent from much danger and discomfort. The idea of experience became an imagined holistic alternative to disenchanted, fragmented ways of being in the world whether seekers of experience located it on the banks of the river Wye or on the white-hot floor of Death Valley; they imagined it to be full, rich, intense. It eluded quantification and resisted reductionism. It could not be explained in terms of something else. It was what it was, irreducible.”

“The agenda of wholeness defined regeneration is the recovery of lost energy. In particular, acolytes of experience hoped that a return to nature might restore vigor to a depleted boudoir – those “thousands of tired nerve shattered, overcivilized people who have found that going to the mountains is going home, that while this is a necessity,” as the naturalist John Muir observed in 1901.”

“Chorus girls were dependent, vulnerable, and easily disciplined into mass demonstrations of male mastery. Certainly that was the goal of Ned Wayburn, the chorus king and the Frederick Winslow Taylor of Broadway. Wayburn specialized in dance routines of geometric precision. "It is system, system, system with me," said the busy choreographer in 1913. "I believe in numbers and straight lines."

I suppose the great irony is that even as the workers were losing their sense of themselves as people, the corporations that were draining their life’s blood, were absorbing the status as people. Here is what Lears has to say about that grand mal transference:

“This giant race of artificial persons, the sociologist, Edward A. Ross observed in 1907, was engaged in 'sinning by syndicate' – exploiting workers, poisoning consumers, fleecing investors –but the apparent impersonality of their organizations defused responsibility for decision-making and made the actual sinners hard to pin down. Rockefeller and Carnegie were notoriously adept at distancing themselves from subordinates' execution of their orders. Ross urged reformers to follow the maxim, 'blame not the tool, but the hand that moves the tool' in assessing responsibility. The trick was to find the men who 'give orders but do not take them.' In a corporation they were the directors, who enjoyed economic freedom. The directors suite, wrote Ross, 'is the moral laboratory where the lust of an additional quarter of a percent of a dividend, on the part of men already comfortable in goods, is mysteriously transmuted into deeds of wrong and lawlessness by remote, obscure employees In terror of losing their livelihood.' The appropriate strategy was clear, Ross thought: 'the anonymity of the corporation can be met only by fixing on directors the responsibility of corporate sinning.'"

And so perhaps, it is still today. From the study of history, we learn to see what is actually around us.

Question for Comment: How many people do you know who can look at their lives and see what they do as “heroic” – as worthy of a memorial someday? How does this impact our emotional health? Note. Much of what is written above has to do with the psychological health of the masculine half of the populace. What was going on in the lives of the women of the day may be a question for another book and another book report.